In October, the focus is on retirement. This theme draws our attention to the need to plan and save for the day when we will retire. I think people have heard enough preaching about the fact that they are not saving enough.
For me, it is more about empowering people to make conscious and positive decisions about their future. It is about maintaining independence as a retiree and having the money and accumulating the resources to pursue goals and aspirations in your later years.
Our perceptions of retirement have changed significantly in the past decade or so. As a life stage, retirement doesn’t have to be a full stop, but the start of another exciting chapter. Many South Africans are enjoying active, vital lives after retirement – starting a new business, or investing or travelling more.
However, as a life stage or a milestone, retirement does require some planning. Most of us do not want to rely on our adult children or the state in our later years. This is why we are encouraged to start thinking about the day when we will not be earning a regular monthly salary, and will have to replace it with an annuity income to cover monthly expenses.
There are a few investments that can create this new income stream, which may include rental properties, unit trusts, provident fund and income-wrapped retirement products.
It is important to investigate and identify the right product for you and your anticipated. This is where the skills of a professional financial adviser can add significant value.
What most retirees do not want to do is to dig into their capital, and, if they do, they want a view of how an investment will generate an annuity income.
What is also extremely important to retirees is certainty – and that is where cash can be an amazing asset class for retirees, because your capital is guaranteed and your income stream is predictable. For example, a fixed-interest account will provide you with interest that is consistently paid to you monthly.
Many people approaching retirement age in South Africa do so with some trepidation. Taking a broader view of South Africa’s economic and political landscape – with business confidence low as we come out of a technical recession, and a lower interest rate cycle – there is a sense of anxiety.
In times of anxiety, people often look for a safe haven for their investments, and cash is often identified as safer, more reliable option compared with more volatile options, which rely on equities or dividends. And although interest rates are lower, they have not dropped steeply.
In a more volatile political or economic environment, knowing where your income will be coming from is even more important. Rather than focusing on the uncertainty, seize the opportunity to reassess your retirement plan and start making conscious and positive decisions about the future. Although it is always a good idea to diversify your savings and investment portfolio, cash should not be dismissed or overlooked in the current climate.
Not all deposits are created equal, and it is worth your time to shop around and compare different products and banks. You should factor in brand security, liquidity needs, and product or service providers that offer you the best rate, or a pensioner’s rate.
Although equities will generally outperform cash in the long term, cash is attractive for the short-term needs of a retiree, because it offers more stability and peace of mind.
Retirement Month is relevant and timely, because it sparks conversations and helps us to think about the future. Regardless of your age or income, you should be thinking about maximising your savings and making the most of them.
René Grobler is the head of cash investments at Investec.